Austal Limited (ASB) Earnings Call Transcript & Summary

Hi, and good morning, everybody, and welcome to the FY '24 Full Year Results Call. I'm Paddy Gregg, the CEO of Austal, and I'm joined by our CFO, Christian Johnstone. We'll present in the same format as we normally do, with me giving a business overview and context, and Christian will focus on the financial details. As always, we plan to present for no more than 30 minutes and we'll have plenty of time for your questions. I think in summary, it's been a really busy second half for the company and very exciting to get resolution to some issues that have been outstanding for quite some time, like the Department of Justice matter. And there's a lot changing in the business. And it would be remiss of me not to mention that FY '24 was the last financial year that our founder, John Rothwell, served as Chairman of the Board. And while John continues to actively contribute to the company as a Nonexecutive Director, it certainly was his drive and determination as Chairman that set Austal up as a successful company that we see here today. Our new Chairman, former U.S. Secretary of Navy, Richard Spencer spent a week here in the middle of August and is very, very energized about his role at Austal and Austal's future. I think the outlook is fantastic, both here and in the U.S. and I'll talk through that as we go through the presentation today. As I said, Christian will focus on the financial details and then we'll finish with a bit of an outlook. So if we start with a bit of a summary of Austal, for anyone who is not overly familiar with Austal, we operate 5 shipyards in 4 countries, we've got 8 service centers in 4 countries, we have 45 ships under construction or scheduled and some 67 vessels under sustainment contracts. And importantly, we've continued to grow the order book by another $1.1 billion this year to a record $12.7 billion, and the underlying business is performing well. We've delivered 7 ships this year. And indeed, if you look at Australia, we've delivered 30 ships in the last 5 years, which is quite an amazing achievement. I'm certain that has contributed to Austal's position in the Strategic Shipbuilding Agreement, again, something I'll talk about later on. Headcount globally sitting around 4,300 people and growing daily. So if we think about the overall summary of the FY '24 performance, I think the underlying business is performing and our financial results were significantly better than last year. And while revenue reduced slightly, EBIT increased substantially, and we were pretty much in the middle of the guidance bracket that we gave everybody. We achieved those results despite a blip in the Australasian business. You'll see that in the results. That's not expected to be repeated with the correcting effect of 3 new commercial orders for our Asian yards and defense programs starting to ramp-up here in Australia. We've continued to invest and grow in FY '24, which has taken an impact on the cash position but we've been -- cash position really driven by the investing CapEx in San Diego and the cash flow impact of the T-ATS and AFDM contracts, coupled with those -- blip in the Australian losses that we talked about earlier. I don't want to downplay those issues but we are setting up Austal for future success and return on that investment will benefit us and shareholders and Navy for years to come. As we've previously stated, future ship contracts such as T-AGOS and OPC were bid very differently to T-ATS and AFDM in terms of cost escalation and labor hours that were used for those bids. But we continue to invest and we want to invest more. Our investment will grow and increase over the next 3 years as we invest further in the steel line and associated assembly launch and recovery infrastructure. Now that we've resolved matters with the Department of Justice, we can finalize our CapEx funding, and I look forward to providing more specifics on what that investment entails and will fund it in the near future. If I look at the results, I think we should single out the Support business for a particular praise. Our target was to hit $500 million of revenue by FY '27. And if you look at the graph we've provided in the pack, we're well ahead of that trajectory with $468 million of revenue booked in FY '24. And that's before our San Diego yard comes fully online, which is anticipated to be ready for FY '26. Thinking longer term, we've talked about AUKUS over the past couple of sets of results and how Austal can benefit from Pillar 1 with the submarine modules we're already building, and I anticipate growth coming there. Pillar 2 is all about technology and both in the U.S. and Australia, it's pleasing to see the technology businesses are really starting to contribute. And again, I anticipate this will continue to grow. Particularly pleasing, something we've mentioned in the past, we've talked about how it will be a feature in the future, and it's absolutely starting to contribute, so well done to those teams. While a lot of the focus is on the U.S., given its importance to Austal's revenue and profitability, Austal Australia is also being set up for long-term success with a Heads of Agreement to become the Commonwealth of Australia's shipbuilder of choice, here in Western Australia. Looking at what has been announced to come through that Strategic Shipbuilding Agreement with Austal, there is probably a 20-year look ahead of vessels, including more Capes, Landing Craft - Medium, you've seen about in the press, Landing Craft - Heavy, that has also been announced and then looking to the future opportunities on General Purpose Frigate and Optionally Crewed Surface Vessels. That really is a $20 billion-plus opportunity giving us 20 years of work and certainly provides us a runway to continuous naval ship building, something that will take that boom and bust out of our results here in Australasia and replicate what we've managed to achieve in the U.S. And while these results this year are very important for shareholders, it's also important to have a think, a step back and look at the macro level. We've got a $12.7 billion order book across some 14 programs. We've carved a unique space in the U.S. defense industrial base, building our own vessel programs with our own design, working on subcontracts for others, such as modules for U.S. Navy and building other designs as well. And then as I talked about the Strategic Shipbuilding Agreement here in Australia, which we hope to finalize later this year, will place the Australian business in the same position we've forged in the United States. So if we look at the financial headlines, if I summarize these, reduced revenue largely driven by lower shipbuilding throughput but increased EBITDA up from '23 despite a challenging year in Australasia. Cash down slightly from where it was but certainly sufficient cash and facilities for operations. And that operating cash really down as a result of the lower Australasian shipbuilding throughput and the U.S. onerous contracts that we've talked about in previous results and continue to be a feature. Net cash reduced mainly due to investment in the business, predominantly in the San Diego facility, dry dock and also some of the design work we've started for the final assembly sheds for the steel ships in Mobile. NPAT is up and includes a high U.S. tax charge due to resolution of the BAPA issue and also the DOJ Penalty being a disallowable expense. And again, as per the last set of results, we haven't declared dividend, really due to the future requirement for cash going forward and maintaining that balance sheet as we do that. Looking at the order book, 3 years ago, we talked very much about the big challenge being how do we replenish the LCS and EPS revenue that's coming, and we really are in a phenomenal position there compared to where we were 3 years ago. LCS is still ending but we also had significant uncertainty in the Australian order book and both in the commercial and defense space. I'm really excited about where that's going and the future that we have in front of us. And we've got significant defense announcements that are being worked into contracts in Australia. So we've given you visuals of what those ships could look like, and I've talked about at a macro level what that could be. It's really pleasing to see announcements from defense and government around intentions and then being backed up with funding and signing that contract for the Strategic Shipbuilding Agreement later on this year, will really cement that position. And commercial has also been a discussion we've had for the last 18 months. We saw a big decline originally due to COVID and then a slow return. We've had some pain this year, keeping those Asian yards open to make sure we were still a major player in the commercial market. I'm really pleased to see those 3 orders coming in towards the back end of this year, just that slight delay is what's impacted the Australasian business. So very pleased to have that on order now. And that order book just gives us tremendous opportunity to grow this business, put stability into it and deliver stable results going forward. So with that, I will hand you over to Christian, who will talk through some of the financial highlights, and then I'll finish with a bit of a strategic outlook.

Thank you, Paddy. If you review the group revenue, it reduced by $116 million to $1.469 billion, largely driven by the reduced revenue from the maturing LCS program in the U.S., which decreased $166 million year-on-year, which was somewhat offset by increasing revenue in the U.S. Support business and Advanced Technologies business, which both delivered strong results, increasing by $85 million. In Australasia, there was a reduction in defense work and minimal commercial vessel construction, leading to a reduction in revenue for this segment. Turning to group EBIT, we delivered an underlying EBIT of $59 million, in line with market expectations, based on strong performance from mature programs in the U.S., which more than offset the provision taken on the AFDM program and Australasia losses. As previously mentioned, the increased revenues from the U.S. Support business and Austal Advanced Technologies contributed to a strong EBIT result from this segment of $51 million. In Australasia, there was a decline of $29 million, primarily driven by minimum commercial build contracts for our Asian yards and the decline in defense patrol boats reducing throughput for all of these yards. The award of 4 patrol boats that occurred later in '24 was too late to deliver any significant contribution to the results this year but we do not expect this trend to continue into FY '25. There were 2 items in FY '24, which would substantially offset each other. As mentioned by Paddy, we've now settled the long-running DOJ/SEC matter, which we have fully provided for in FY '24. The negative impact on earnings was offset by the finalization of our sale of land in Mobile, which generated a substantial gain on disposal in conjunction with land being acquired by the group as part of this transaction. This led to underlying EBIT and statutory EBIT being in line. Cash and capital expenditure. Operating cash flow was significantly impacted by the onerous T-ATS and AFDM contracts and the Australasia loss. Enhancing capital expenditure was $45 million more than FY '23 at $48.5 million, primarily related to our San Diego Support business and design work and expansion of our San Diego project in Mobile. The proceeds from the sale of land of $48 million was effectively reinvested in the business. In the second half, we drew down on our revolver facilities to bridge until we have a sale land of Requests for Equitable Adjustment for the T-ATS program. As Paddy mentioned, no dividends declared due to forecast capital expansion and the impact of the DOJ resolution. We ended FY '24 with cash of $17 million and we have sufficient cash and facilities for our operations. Looking a little bit deeper segment breakdown into the USA, U.S. shipbuilding revenue declined a 114 million -- $144 million at a headline level, driven by declining throughput in the reducing LCS program with 1 vessel remaining for delivery during FY '25. There was growth in other programs, that will be T-AGOS and EMS will replace that decline. The U.S. Support revenue increased by $93.5 million, driven by increased availabilities in Singapore and growth in Advanced Technologies business. It is pleasing that margins in both U.S. Shipbuilding and Support have improved on the prior year. The T-ATS and AFDM programs have no margin recognition due to their onerous nature. As we have previously stated, the future ship contracts were bid very differently to T-ATS and AFDM in terms of cost escalation and labor hours estimation. As we commence FY '25, we are pushing to resolve the Requests for Equitable Adjustment on the T-ATS program and efficiency improvements on AFDM. When we look to the segment breakdown in Australasia, Australasian shipbuilding revenue decreased $67.5 million, driven by minimum commercial ferry construction. Australia Defense, which is patrol boats revenue reduced by $41.8 million from FY '23 with lower throughput on existing Guardian-class and Evolved Cape-class Patrol Boat programs and the secured contracts that they won, which was 2 of each of those vessels had minimum impact on a year. The revenue from our Asian yards, which are predominantly focused on the commercial market, reduced by $25.7 million with minimal work during the year. The awards of Dory 2 for the Vietnam yard and Vela, post June '24 will provide throughput for those yards in '25. The negative shipbuilding margin is driven by minimum commercial work in Asia. The impact of that was at $17.9 million and lower defense and patrol boat activity. This is not expected to be repeated in FY '25 due to the positive impact from the Strategic Shipbuilding Agreement and commercial and defense orders received in calendar year '24. Australasia Support has slightly higher revenue, $4 million and EBIT of $0.8 million in FY '24. When we now look at the long-term investment proposition, the graph show historical share price, our earnings, our order book, and revenue. Over the past 7 years, Austal has delivered nearly $12 billion of revenue and around $580 million of EBIT with an average EBIT margin of 4.9%. This margin has exceeded 7% when major programs such as the LCS progressed beyond the high-cost ramp-up phase to a steady-state profitable phase. When you focus on the growth in the order book, you can also see there's been a disconnect over the last 3 years between order book and share price due to execution and start-up challenges on some of our programs. Today, we have a record order book of around $12.7 billion, which exceeds our total revenue for the last 7 years. At the 7-year average EBIT margin, this can potentially deliver over $600 million of EBIT to the company, which with significant upside as major programs move to a steady state. We continue to work hard to position the company to properly execute on a record order book and remove the share price order book disconnect. To achieve this, we have carefully managed cash ahead of the planned CapEx program to build up revenue capability, resolved DOJ investigation, improving certainty around forward cash availability and requirements for the investment program. We've maintained a net cash balance that provides growth flexibility for future investment, and we've implemented management changes at Austal U.S.A. to drive profitability, investment, and growth. The orderbook is shown inclusive of all of the OPC, T-AGOS, and LCU contracted options, including those that have not yet been exercised. What is currently not on the order book is the contracts relating to Austal's Strategic Shipbuilding Agreement in Australia. The Minister for Defense in Australia announced that Austal will build 2 more ECAPES and subject to contract, the medium landing craft, heavy landing craft, with programs totaling approximately $4 billion. The Australian Surface fleet review has provided for 8x General Purpose Frigates and 6x Large Optionally Crewed Vessels announced to be built in Australia, in addition to the 3 General purpose frigates to be built overseas. Our guidance for FY '25 will be provided at or in advance of the AGM, but with recovery in the Australasian operations, EBIT growth is anticipated. The key drivers of our guidance includes the record order book of $12.7 billion, increased orders anticipated through the Strategic Shipbuilding Agreement, increased volume of work in Australasia, improving productivity on T-ATS and AFDM programs, T-ATS REA progress and a weakening U.S. dollar could reverse the tailwinds experienced in FY '24. I will now hand back to Paddy.

Thanks, Christian. So if I just finish with my version of the outlook and where I think the company is going, and then we'll open up for questions. So thinking about it, that record order book in the U.S. with the strategy set to follow through the Strategic Shipbuilding Agreement really sets us up very nicely for at least the next decade. The underlying business is performing. You see that in the results but our focus must be on remedying those start-up challenges. We believe the issues on T-ATS and AFDM are confined to those programs. And as we've talked about before, there's a lot of focus on the request for equitable adjustment to resolve the tax issue. And then Australasia set for growth through the Strategic Shipbuilding Agreement and those commercial orders already received, hopefully help you understand why we took a bit of pain in Australasia this year to keep those Asian yards open, ready for more revenue and profit in the future. Department of Justice resolution, it's fantastic to have that off the agenda. That's been a lot of work for a number of people for years quite literally. And resolving that financial unknown really allows us to finalize the financing of the CapEx in the U.S. for growth, and we'll come back to you in due course and update you on what our plans are there. We are transitioning to our new order book, our new programs, which will bring great growth to the business, both in terms of revenue and profitability. And that will also bring a lot of jobs. So I anticipate between U.S. and Australia, we will be recruiting in excess of 2,000 people over the next 2 to 3 years. And there are more opportunities on top of what we've talked about today, AUKUS and submarine modules, I see opportunity for growth there. The technology businesses, both in the U.S. and Australia, Additive Manufacturing, our new Additive Manufacturing Center of Excellence in Danville opening and growing. It feels like that is just going to become a bigger, bigger feature and more helpful facility for Navies going forward. And most importantly, the relationship both in Australia and the United States with our customers is growing and strengthening. And that's at a very, very critical time whenever we see defense becoming more and more important. And probably later on today, you'll see some great media coverage of the commencement of the OPC program in the U.S. with the cut metal ceremony happening as well. So lots of exciting things happening in the business, working through the transitioning, great order book in front of us and a very, very exciting time for the company. So with that, I'm happy to open the line for questions.

[Operator Instructions] Your first question comes from Sam Teeger with Citi.

First question, I appreciate that it's outside of your control but I would have thought that T-ATS REA would have been close to finalized by now. Just if you can talk a bit more in terms of any update into timing? And how do you think about how much funds you need to raise for the overall expansion in Mobile with this REA still outstanding?

So yes, we've talked previously that the REA process is not a defined one as often is the case on defense contracts. So the dilemma we've got really is making sure that we fully understand the consequence of the design changes and therefore, don't shortchange ourselves whenever we finalize the REA. So a huge amount of work has happened over the last year and more specifically, 6 months in terms of the cause and effect of the designed efficiencies and the impact that has had in production. We need to make sure when we go for the REA that we are absolutely encompassing all of the costs that we have incurred and our dilemma is when is the right time. So yes, it's costing us cash while we haven't got it resolved but we don't want to resolve it at a lower figure than perhaps is justifiable. That's something that we're working through. We've got a great independent expert that is working alongside us that specializes in these sort of claims. And we're taking Navy on that journey with us in terms of helping them understand the sorts of impacts that have happened in the business, the quantums that we're talking about, potential solutions. There might be some novel solutions in there where we can work with the customer to come up with a best answer for Navy and for Austal. So it's not a very straightforward answer in terms of we'll be submitting it on Wednesday in 2 weeks. We have a very mature claim, which could be submitted. And our question is when is the right time? So to not avoid your answer, I think we need to resolve this in FY '25. And we're working very closely with Navy on that and a number of other issues to try and bring that to a conclusion this year. And then that will also feed into what do we need for the CapEx. So we've talked about a desire for up to $300 million investment for consolidation sheds for the steel vessels in the same way we have consolidation sheds for the aluminium vessels or the aluminum vessels for my U.S. colleagues that are on the line. And that is absolutely something we want to do because it sets the business up for every -- pretty much every program we foresee Austal being interested in for the next 20 to 30 years. It also incorporates a ship lift, which will allow us to more easily launch and recover very big heavy vessels that we build in Mobile and maybe even be used for submarine modules as well going forward. That's just something we're working through the Navy to make sure we absolutely invest in the right capability to maximize our future opportunities. And the complication with all of that is cash flow because as you know, we're reasonably good at generating cash. It would probably take us the best part of 3 years to complete that investment. So the CapEx we require is a function of what's happening with T-ATS, how much cash are we generating and the spend profile of the new investment. So I'm sorry, it's not a very straightforward answer but it's -- those are the factors we're wrestling with on a daily basis.

And just to clarify what you said, when you say you're making sure you fully understand the consequence of the design changes, is it fair to say you're only going to really know the consequence once that first boat is in the water and then like what per post like what percent are you through building that first boat?

So there's a picture in the pack actually that will give you an indication of just how far through the vessel we are; we're much greater than 50%. And I guess the optimum time for us would be when we launched the vessel, we think, that's when we should have a real idea of what it's cost to build a vessel. As you know, we launched on a very high completion rate, 90-plus percent greater, which gives us the confidence in terms of the overall delivery of the program. So I think launch would be the latest, operational needs may suggest that it would be prudent to go sooner than that but certainly, FY '25 is a year that we will be focused on resolving the T-ATS issue and CapEx funding.

Got. and then just one minute thinking about how you're going to fund the Mobile expansion more generally, just be interested in any comments you can make in terms of what proportion of the funding do you think will be funded by government grants and what's the appetite to raise equity given the share prices to order discount to NTA?

Good question. I don't think the same grants that we had for the steel investment are available. So it looks like we will be doing this ourselves. You make a really good point on the equity side of things, yes, the share price is trading below net tangible assets. So that's not preferable. And we have had a lot of interest in debt based on the fact we have a very big order book, very long-term government-backed contracts. There is a lot of appetite for debt in the U.S. and a lot of support on that. And it's really the resolution of the DOJ matter that turns your question mark into a number in a spreadsheet. And we're now -- as soon as we get through results, very focused on finalizing what the right answer is for that CapEx cash.

Your next question comes from James Lennon with Petra Capital.

Just wanted to ask 2 questions. Firstly, just can you give a bit more detail around what the miss was in terms of the revenue, where you ended up versus guidance? I know you mentioned there's a few things that were a bit slow to get off the ground, if you can give a bit more detail about what these were?

Yes. It really is that transition as we come off the mature programs. How quickly can we get through the design? That really opens up -- getting through design opens up the ability to place long lead orders for materials, which starts to drive revenue and then getting into actual production and ramp-up of people. So some of the factors that we've talked about in the pack and it's taken us a little bit longer than we anticipated just to get through the design phase and really get going. But as I said at the very conclusion of my opening remarks, getting to cut metal on OPC is a great milestone and I think we're through those delays, and we're really now starting to open up the work fronts that allow that revenue to increase.

And just -- I know you haven't given any specific guidance, but sort of noting that you think EBIT will grow this year, just keen to know given that some of the higher margin programs are running off, how confident are you that you can replicate or if not beat that sort of EBIT margin you got from the U.S. at sort of 2.9%?

Yes. So I think the underlying business is performing pretty well. We've seen good results coming through the support business, which doesn't tailor off with mature programs. We're seeing the technology businesses, both in the U.S. and Australia, starting to grow. We're seeing some marine modules coming online and absolutely in production. The main program that rolls off is the LCS program. And that revenue gets filled by OPC starting to come online that we've just talked about. And then if you just consider the blip in Australasia that we don't expect to repeat, that was a $29 million hit to the bottom line. So that gives us the confidence that there's a lot of areas that if we haven't had a few missteps or slow starts this year, actually, the result could have been better than it was. I'm really pleased that it was in the middle of guidance. But the reason we gave a range this year and quite a broad range was because of a lot of the big swing factors that we're trying to wrestle with to give you the most accurate guidance and the most -- the best overview of the business we possibly can. So Christian talked about a few of those factors that we wrestle with on a daily basis, some of which are outside of our control. And as we come through that in the next couple of weeks, we'll absolutely be ready to put out a number we're very confident in with profit guidance. And that's why we've tried to signal that if you just look at some of the factors that we don't expect to repeat this year, that's what gives us the confidence that EBIT will grow next year.

Yes. Great. One more quick one, just quickly. With the Strategic Shipbuilding Agreements, are there any risks around that not being signed? I mean, any thoughts...

I'd love to say no. I don't think there are great risks. And you've seen the announcements that have been made by defense and by ministers. So they're very, very keen on making it happen. Negotiations are going well. There's a huge amount of work happening behind the scenes with our team and with the Commonwealth team to make that happen. A couple of weeks ago, you probably saw Minister Conroy on-site at Austal, again, talking about the landing craft program, the urgency of that program, the fact that they want ships at the back end of FY '26, and it's that Strategic Shipbuilding Agreement that underpins those contracts and will allow us to deliver in line with what has been announced. So I think it's a very, very high probability. I'll never say 100% because it's defense procurement but yes, it certainly looks very positive from our perspective. And that just enables 10 years plus the future.

Your next question comes from Gavin Allen with Euroz Hartleys.

Just a quick one for me. So Support was a highlight looked like in the U.S. Just wondering how we might think about this as San Diego and the dry dock there gets up and running and also maybe a bit of color on support in Australia going forward?

Yes. So dry dock will be important because it opens up a whole new revenue stream, the ability to lift vessels out of the water and do underwater work and will be another string to the bow, and it's all part of that journey we embarked on a few years ago to get to $500 million. That's taken a bit longer than we wanted, a few environmental rules and regulations have popped up that are perhaps new or unforeseen compared to what we'd agreed whenever we set out on this journey. So we've just got to work through that. That's the joy of California. But certainly, through this year, we see that commissioning. You'll see in the pack photograph, the dock is actually there. So it could be operational. We're just going to get through all the environmental controls and regulations and getting commissioned and then we'll be ready to start winning work. We think the overall thematic has remained that there is more requirement for docks than docks available. So we're confident that is going to contribute to the revenue in a meaningful way.

And life in Australia?

Yes, really exciting in Australia. From a support perspective, we continue to deliver ships. So the patrol boat pie is growing. And hopefully, our slice of that continues to grow. The business is performing well. As you guys get into the detail, you'll see a little bit higher width than we've had previously, sometimes a feature of that type of work. But I think good opportunities for us as a business as that pie grows, that we can continue to deploy our people and our skills and our facilities up in Cairns, absolutely helping grow that support business and that overall target.

And just one last one for me. Just to clarify on Australasia, you talked about that being a blip in '24 that's not expected to be repeated. Would you see this as based on the order book as it is now? Do you still need to win or [indiscernible] a few more contracts yet to turn that around, do you think?

So what we won will definitely turn it around. I think there's opportunity for more. So we're not at maximum capacity. If you look in some of the press results, there's a big operator in Scandinavia, Scotland that we're working with. We've partnered with them for design. They've actually won the root license. And if that comes off, that could be a 130-meter dual-fuel boat, which would keep the Philippines busy for 3 years. So I think with what we've won and what we see coming in the pipeline, confidence is really growing that we're going to get back to meaningful results in the commercial market, which is great to see. We've already seen work ramping up in Australasia, and we know there's -- sorry, in Australia, and we know there's more coming with the landing craft programs later this year. So I'm confident we've turned around from last year. But as always, we could take a little bit more and sweat the asset.

[Operator Instructions] Your next question comes from Andrew Mouchacca with Flinders Investment Partners.

I've got a quick one for you. Just going back to the actual result presented now, you've provided the underlying EBIT of $59 million. But I wanted to -- and I noticed that there are some one-offs in the tax line of around $9.1 million associated with those penalties, I'm wondering, I still get a tax rate in that underlying sense of over -- close to 40%. So I'm just wondering, is there anything in the interest line that is one-off in nature as well?

In the interest line or tax?

Well, the tax line, I can see the $9.1 million as per note 9 unless there's something more than that, more than the $9 million.

No, no. So the tax line is probably higher than what you would expect because in the U.S., we have a higher tax bill because -- then we have a concession in the U.S. around large-scale construction programs and the programs that were completed around 5 years ago have no income and now the big taxes crystallize on that particular immature program. So there's a bit of a disconnect between what you would expect as a normal kind of run rate effective tax rate and where results are. So there's just -- that's just a different alignment between taxation treatment and accounting treatment.

Sorry, Christian, I think I might have been [indiscernible] there. I noticed there's a nondeductible fine and penalties of $9 million in your tax line, okay?

Yes.

Now all I was asking was, is there anything associated with those fines and penalties that exists in the interest line as well?

Yes. So we are on a 12-month payment plan, so that like any government entity, if you owe them over a period of time, then they've got a right to charge interest. So there is an interest component related to that fine in the interest line that's been provisioned for the next 12 months.

So the number -- if you'd have to identify -- if you had to guess what normalized NPAT was for FY '24, and again, I apologize for looking in the past, given the focus of this[ press ] I was in the future, it would be somewhere closer to $27 million. Is that what -- would you agree with that?

It's not something we've worked out, to be honest. We haven't thought about normalized NPAT, no. We don't have to think about it. We can always follow up next week or something like that.

Your next question comes from Dennis Moore.

I know one likes to know what the next year's guide is going to be and so on, but the way I try to think about the company is thinking about 3 to 5 years ahead. In other words, what -- you've done a lot of patchy work in the last 18 months. You've got another [ $3 million or $4 million ] in the next couple of years just building the business up. I'm interested in, say, after that's done, maybe in 2027, '28, what other work can you do to build a bigger base view business?

Yes, that's a great question. So with the programs that have been announced, we will grow quite significantly. Adding 2,000 people to 4,300 suggests there's -- our business is generally driven by materials that you buy and then the other half of it is the people that you bring on. So 2,000 people in my mind suggests that at least there's an additional 33% revenue growth coming forward and profitability on the back of it. That's just with what we've won. And remember that $12.7 billion order book excludes the Australian stuff. We are not on full contract for medium landing craft and heavy landing craft. That was announced by the minister as up to AUD 7 billion of work, and some of that AUD 7 billion will obviously be government costs for their project management and contracting costs but the vast majority of that should be coming to Austal for those programs. Then you look forward to General Purpose Frigate, which will be a very big program, 8 ships to be built in Australia. Again, that will be billions and billions of dollars of work. And then some of the other features that we talked about around technology, Additive Manufacturer, the sustainment software that we have developed here in Australia, we'll continue to prosecute opportunities to sell that. The commercial market coming back, we've already scratched the surface of that. In years gone by, we've probably done close to $150 million of revenue per year in the commercial market. So there's a great opportunity there. Another big one, which I think is a very, very exciting opportunity is, of course, the submarine modules in the U.S. and what comes with the AUKUS pact between U.S., Australia and U.K., and Austal being in that unique position that we're one of the few Australian primes that has major operations in the United States, and we are already made conduit for work and agreements between the U.S. and Australia to increase revenue. And if you want even more on top of that, if you look at the presentation that we posted online, there's a series of opportunities that we talk about on the expanding shipbuilding side with some of the bigger programs in the U.S. as well that are coming with frigate second source, large, unmanned surface vessel, next generation logistics ships. The U.S. Navy continues to place orders. And with the facilities we want to build, we'll make sure they are absolutely capable of taking those programs going forward. So, really I'm genuinely excited that we have a huge order book today. It will grow tomorrow with what's already been announced, and we see more opportunity in the future. So, a pretty exciting time.

I just have one other question. And that is that you've laid some pretty good groundwork for growth and profitability over the next 3 to 6 months. But you sort of -- I look at it and see still [indiscernible] shelf as someone who might want to take you over or do a joint venture with you. And the problem that I foresee is that here you are doing all this hard work and you'll be doing that again for the next 3 or 4 years as well. If you're going to get taken over, so there's no sense we try to sum to take you over is in the near future rather than wait until you've got a mature business. Do you have any comment on that?

Yes. I don't disagree with your logic. We focus on a daily basis on our strategy. We think we've got a great strategy, and we're, in my mind, doing very well against it, thinking back, as I said earlier, to 3 years ago, when it was doom and doom, you're going on a business, you've got no work. We've almost got the opposite problem today. So we are going to absolutely focus on that. And if somebody comes along and is interested, the Board will only act in what they believe is the best interest of shareholders. And if you're worried from a sovereign perspective or a nationalistic perspective, of course, there are controls in place with the Foreign Investment Review Board here in Australia and CFIUS in the United States that will decide even if there is an offer that's in the interest of shareholders, is it in the national interest. So I think there are a lot of -- there are sufficient controls in place that nothing strange will happen. And in the meantime, management's focus is 100% on the business and acting in the best interest to shareholders.

Your next question comes from Sam Teeger with Citi.

Paddy, just one follow-up on the question you just answered. Just any update surrounding Hanwha and what the company's willingness to engage with them specifically?

Sam, specifically, anyone who's interested in the company will be treated in the same way, and it's always with the lens that what's in the best interest for shareholders. As we announced to the ASX, we had some concerns around transactability. We'll continue to work through that and having informed the market with an announcement of anything changed, we'd be dutybound to inform the market again.

So those concerns you have around transactability still remain. Is that fair?

Ongoing discussions. Yes.

Your next question comes from Ben Felton with Australian Defense Magazine.

You've got a mention in your presentation about an opportunity with the Philippine Coast Guard. What do non-Australian and non-U.S. defense opportunities look like now?

So most of our focus is the commercial market. But of course, when we've got yards already set up in the Philippines and Vietnam, Philippines is an opportunity for us. We had a go with Philippines offshore patrol vessels some years ago, we were unsuccessful unfortunately. We've got a great relationship with [indiscernible], including the President in the Philippines based on the work that we bring to Balamban, in Cebu. We're a very big employer there, and it's a great opportunity for the Philippines to employ people and what a nice solution building vessels for their coast guard/defense forces. And noting the relationship between Australia and the Philippines is strong and getting stronger every day, we just see that as a win-win for Austal Australia and the Philippines. So something we're working on. And their procurement processes might not be as transparent and well-defined as they are here but we've got great engagement with the Coast Guard. We get tremendous support from the Commonwealth of Australia through the embassy, which we're very grateful for. And if that would come off, wouldn't be great to be doing defense and commercial work in the Philippines. And again, we like that because it takes the broom and brush side of what can happen through the commercial market and try and balance those 2 customers. So exciting opportunity there, and we'll continue to prosecute it and makes it so much easier whenever we've got existing facilities and workforce.

There are no further questions at this time. I'll now hand back to Mr. Gregg for closing remarks.

Thank you. And I'd just like to say thank you all very much for dialing in, asking your questions this morning. I think a very strong set of results with a few quirks in. As always, it's a complex business. But the way I see the outlook is growth, great opportunity. We've resolved one big issue with the Department of Justice, and we'll look forward from now on. I'm confident we'll resolve the tax issue in the same way, and that's not something we'll be talking about going forward, and then it's about making that transition. And as Christian talked about with that investor prospect, I think it's just a great time to be coming in as we start this journey of growth over the next probably 10 years based on the volume of work that we've won. So thanks very much for your support. Thanks very much for your questions, and we'll talk to you all soon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.